Let's Say Thank You to Nirav Modi

Feb 28, 2018

As of September 30, 2017, the total bad loans of Indian public sector banks stood at Rs 6,89,806 crore. A bad loan is a loan which hasn't been repaid for a period of 90 days or more.

Nirav Modi's fraud, as of today, will add another $2 billion (around Rs 13,000 crore assuming $1=Rs 65) to the overall bad loans of the public sector banks, assuming that the banks are unable to recover any amount. This doesn't seem to be the case given that the government has moved quickly and attached many assets of Nirav Modi.

Long story short, Nirav Modi's fraud isn't going to add much to the overall bad loans of public sector banks. A percentage or two more, isn't going to change the situation, which is grave, much. Given this, we have been wondering, why has Nirav Modi got Indians so worked up.

Over the last few days, everyone we have interacted with, from Kaali Peeli drivers, to other cab drivers, to guest house attendants, to journalism school students and faculty, to people who edit the different publications that we write for and even the guy who collects trash in the building where we live, have had a thing or two to say about Nirav Modi.

But Nirav Modi's fraud of around Rs 13,000 crore is small change when compared to the bad loans of public sector banks of Rs 6,89,806 crore. Why haven't we seen anyone talk about the overall bad loans of public sector banks, up until now? The defaults on corporate loans make up for around 69% of overall bad loans of public sector banks. Why hasn't this disturbed people enough, up until now?

Or to put it simply, why have people now started talking about the fact that when they default an EMI on a retail loan, the bank comes after them with great speed and purpose, whereas businessmen like Nirav Modi are allowed to commit a huge fraud, and leave the country comfortably.

Why are businessmen defaulting on loans treated differently by banks than individuals defaulting on etail loans?

Why are there only sick companies and no sick businessmen?

What is it that explains this dichotomy? As Nobel Prize winning economist Jean Tirole writes in Economics for the Common Good: "Psychologists have identified our tendency to attach more importance to people whose faces we know than to other anonymous people."

Take the case of the distressing picture of a three-year-old Syrian child, who was found dead on a Turkish beach in 2015. This forced Europe to pay attention to the refugees coming in from Syria.

As Tirole writes: "It had much more impact on Europeans' awareness than the statistics about thousands of migrants who had already drowned in the Mediterranean."

Or as Joseph Stalin, the Soviet dictator, once said: "The death of one man is a tragedy. The death of million men is a statistic."

This phenomenon works in advertising as well. As Tirole writes: "An advertising campaign against drunk driving has a more powerful effect when it shows a passenger flying through a windshield than when it announces the annual number of victims (a statistic that provides, however, far more information about the consequences of drunk driving)."

As far as India goes, let's take the case of the Bhopal Gas Tragedy which happened in December 1984. A bulk of English speaking and reading India woke up to the tragedy only once the India Today magazine put the picture of an unknown child being buried, in the aftermath of the tragedy, on its cover.

An issue really becomes an issue in the minds of people, once they can visualise it in terms of an individual. A good example of this in the Indian case is that of the anti-gutka campaign that was run a few years back, and which featured an individual named Mukesh Harane, who died of oral cancer in October 2009.

He was addicted to gutka. After his death he became the face of the anti-tobacco message which was delivered to the people of this country through an audio-visual clip (shown regularly in cinema halls) as well as a print campaign. It showed Mukesh talking about the ill-effects of eating gutka, with a feeding pipe going into his nose.

It was a fairly disturbing video, but it really drove home, the ill-effects of chewing gutka. Along similar lines, like Mukesh Harane, Nirav Modi has become the poster boy for corporate India looting the public sector banks, over the years. And given this, while the Rs 6,89,806 crore of bad loans did not make much of an impression in the minds of people (in fact very people would even be aware of the largeness of this number), Nirav Modi's Rs 13,000 crore fraud, clearly has.

And nothing works better on the government than public pressure. The government has reacted quickly and seized the assets of Nirav Modi. It is also trying to push in long due reforms. Today's edition of The Times of India reports that the government is planning a new regulator, called National Financial Reporting Authority(NFRA), to regulate the chartered accountants and auditors. It will take away the review and disciplinary functions the Institute of Chartered Accountants of India (ICAI). This is something which has been long due and only the Nirav Modi fraud has pushed the government towards considering this reform, seriously. The ICAI is a part of the deep state that runs India, and clearly needs to be reined in.

Further, banks have been directed to check for the possibility of fraud on all bad loans of Rs 50 crore or more. Many corporate defaults run into hundreds if not thousands of crore. The question is where did all this money that was raised to fund projects, go? Over the years, there has been a lot of talk about corporates overstating the cost of projects, borrowing a larger amount and then tunnelling money out of the project. This is something that should have been investigated as soon as the defaults had started to happen. But, again, nothing was done on this front. Now thanks to Nirav Modi, this exercise has been initiated.

Above all this, the Nirav Modi fraud, raised enough stink, leading to the mass media writing, reporting and discussing about the mess that prevails in India's public sector banks. A large section of the population came to know about the mess, only because of the Nirav Modi fraud. This wasn't happening earlier. And this is very important in a democracy.

This has also led to analysts asking the government, as to why does it need to own 21 public sector banks. Or for that matter, should public sector banks be lending to corporates at all? Some sort of debate has been initiated on this front.

And for all this, in a very screwed up sort of way, we need to thank Nirav Modi.

The icing on the cake will be, if we are able to get Nirav Modi back to India, and the law of the land is allowed to catch up with him.

Regards,Vivek KaulEditor, Vivek Kaul's Diary

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A very pertinent and thought provoking write up. It should definitely be seen, whether Big Corporates should be banned from getting such financial support from PSB. If not banned, Corporates should be forced to pledge assets, which could be easily monetised in cases of default. Law should be made very clear, enabling the Bank Authorities to take stringent action whenever needed. The Accountants and Auditors should also be brought in the picture and stringent action should be taken against the wrongdoers. Above all, no Political interference should be allowed in these cases. Let us not tarnish the image of this country any further.

Loans were Advanced to the Privileged Few because of Public Deposits. To Recapitalise the Banks by the Government indirectly from Public Revenue amounts to Condoning the Banks for their Lapses. How many of these Large Debtors have ever committed Suicide like the Poor Farmers. What is the Track Record Abroad and how many have got away this easily. Can anyone enlighten us on how Defaulters are dealt with in other Countries.Laxity by Watchdog Agencies & willfully turning a blind eye instead of Reporting amounts to Connivance with these Manipulators. Lack of Probity In all Financial matters is the cause of the Downfall of the Rupee which doesn't seem to have hit Anyone. When will we see Action to somewhat Restore it's Glory back to the Nineties.We should be equally proud of the Rupee as we are of our Country's Flag. When every Citizen values both equally & whistle blow on wrongdoings will Real Reform & Progress be set in motion.

We also owe a big thank you to the media who went to town and still is about the Nirav Modi fraud. The media can make or break a person.I hope this opening up a can of worms that has set up the churning and got garbage collector & his dog talking about Nirav Modi will help to put many laws for the future in place. We see some things are happening within the powers that be. And Yes, when the icing is piped on that cake I'd love to be there to lap it up !

2 An issue is made big or not depends upon the media; If they are not interested to publish it, How any issue will be known to others. For example, many good family oriented English films are not screened in many channels. it creates an impression that the western society is full of heros, adventurers, murderers spy, espionage etc.

3 Vijay mallaya was also there before. The media, which is also in the hands of these corrupt capitalists, focuses only on agricultural loan waivers, seventh pay commission etc where their colleagues are not there.

4 Since this has come out, Govt is showing as if some action is being taken. They do not have in built mechanisms to detect it. But they have mechanisms, idea, energy, time to cook up plans in the name of corruption free nation to make us stand up in long queues for many days( demonitisation), pay higher tax (GST).5 The difference between Cong and BJP is the former is honest ( they do not say that we are corruption free) and the later is a cheater.

LETS HOPE THINGS IMPROVE. BETTER LATE THAN NEVER. AND WHATEVER HAPPENED TO ROCKSTAR, POSTER BOY, ECONOMIST RAGHURAM RAJAN. WAS HE SLEEPING THROUGH THIS 'GOTALA.? VERY CRITICAL OF DEMONETIZATION, THIS IS FAR WORSE. WHY DID HE NOT SOUND THE ALARM BELLS?

HIS MUCH TOUTED BOOK AND TITLE A LA JAMES BOND STYLE ( WHICH HE WILL NEVER ACQUIRE), 'MY NAME IS RAGHURAM RAJAN - AND I DO WHAT I DO. YES WE GET IT NOW. HE KEPT QUIET DURING THE LOOT.

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